Archive - Oct 2009

Janet Tavakol says:

"During World War II, we imposed an excess profits tax. We should impose a 95% excess profits tax—or windfall profits tax—on certain financial institutions (including Goldman Sachs) enriching themselves with ongoing low-cost Fed funding and debt guarantees."

What do you think?

Our stock markets are now well into 60% rally territory. Which begs the question: how does this rally stack up with previous ones based on such arcane concepts as economic fundamentals. We present some of the key criteria of how previous 60% rallies have looked like when analyzed across 10 different key economic dimensions (which are completely irrelevant now).

If after reading the two previous posts on the Federal Reserve as saviour of the western world and the Federal Reserve as responsible Central Bank willing to accept bankrupt equities as collateral in its discount window, left your with any unanswered questions, fear not for there is light at the end of the tunnel, and it is called Kay Hagan, Democratic Senator from North Carolina. Senator Hagan believes S 604/HR 1207 is unnecessary: you see the "immediate and broad disclosure that S. 604/HR 1207 would require, could disrupt the financial markets, and jeopardize our country's international finance relationships." Which presumably means that Senator Hagan grasps, comprehends and can explain in simple English such things as $600 billion worth of liquidity swap lines to foreign Central Banks, and the need for those. Additionally, she is aware that the Fed's discount window on occasion holds stocks of bankrupt companies as collateral. Not only that, but it is likely the case that professing a deep understanding of the functions of the Federal Reserve, Senator Hagan is willing to stake her political career and the well-being of her children in guaranteeing that the kind of systematic interference that the Fed has perpetrated via a $6.5 trillion dollar funding gap at foreign CBs is not only tolerable, but in fact beneficial for the US economy, and that a result of the dollar printer's constant and aggressive intervention in global and domestic monetary policy, the likelihood of major risk flaring episodes occurring in the future is zero.

"I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked." - David Einhorn

Russia shot itself in a foot last year when in dispute with Ukraine, it shut off natural gas supplies to Europe. That experienced was very unpleasant for Europe and underlined its dependence on a single nation.

It is only fitting that on the 22nd anniversary of Black Monday, the commentator is none other than the Chairman of the SEC at the time, David Ruder. While Ruder provides perspectives on what is presumed pervasive insider trading as it relates to Galleon and otherwise, such as the ability by the SEC to use wiretaps when doing an investigation in concert with the US Attorney's office, the real critical message from Ruder is the systemic risk associated with hedge fund groputhink, or a massive position held by numerous hedge funds that turns out to be wrong, best seen it in the basis trade blow up, the Volkswagen short squeeze and the Citigroup exchange offer.

Developing story, but, surprisingly, not a dollar negative for once.

House Financial Services Committee DOESN'T wimp out!

Big drop in SPY AH to below VWAP. Big blocks pushing lower. What is one missing here?

The topside resistance of the assumed-to-be bull flag pointed out this morning in EURUSD has held so far. A quick look at the dollar index over the last few days of trading indicates we are facing support here at least in the near term. Even if we cannot claim to have made a bottom in the medium to long term, it looks we should at least retest 75.80 before another wave of selling.

Still staring bug-eyed at the monitor, seeing all sorts of stocks breaking out to new highs as the bubble continues to sky to new heights. Gambling fever is still running amok, especially among hedge fund managers caught with their pants down sitting in money markets.

As the trading day rolls to a close, the trade once again is sell dollars, buy everything else. It is no surprise that stocks are trading where they are courtesy of an insane printing press operator and it being the third lowest volume day of the year, but now the buying spree has shifted into 10 Year US Treasuries as well. Nothing can stop the systemicannihilation of the dollar at this point absent a major exogenous event, or constipated European bureaucrats saying enough before one Euro can buy a few hundred million portraits of George Washington.

Courtesy of the Fed's own disastrous policy of flooding the market with trillions of cheap credit over the past several decades, the resulting massive one-sided trade of buying dollar denominated securities, funded with inappropriately duration matched products, ended up in $6.5 trillion of Fed-funded global Moral Hazard exposure. When the wheels came off the financial system last fall, the Fed had to step in and bail out all foreign Central Banks. From the BIS: "In providing US dollars on a global scale, the Federal Reserve effectively engaged in international lending of last resort...What pushed the system to the brink was not cross-currency funding per se, but rather too many large banks employing funding strategies in the same direction, the funding equivalent of a crowded trade." The imminent question - How long until the next iteration of the Fiat banking system's most crowded trade (long US-denominated securities, courtesy of a cheap carry trade somewhere in the world) pulls the system back to the brink again?

In reviewing the last couple of quarter's results of Goldman Sachs operating results, I have come to the conclusion that Goldman is a Federally insured, publicly traded hedge fund!

The carry trade in full force as the dollar keeps hitting new lows (DXY at 75.31), the VIX breaking below 21 and the S&P moving over 1,100 as limit orders are engaged on yet another low volume day. The USD has moved from purgatory and is about to enter the first circle of Bernanke hell.